Big Discount Brokerage Firms Unleash Commission Battle

by
Grete Suarez

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The commission price war among discount brokerage firms just hit a trifecta.

TD Ameritrade joined rivals Fidelity Investments and Charles Schwab Corp. in cutting prices on stock trades, announcing late Tuesday it will slash commissions 30% to $6.95 from $9.99 effective March 6.

Fidelity fired the opening salvo on Monday when it cut commissions to $4.95 per stock trade from $7.95 effective immediately. Schwab responded Tuesday morning by announcing it will drop commissions on online stock trades to $4.95 from $6.95 on March 3.

Discount brokers undertake price wars with some trepidation, as it can eat into their revenues, said Richard Repetto, equity research principal at Sandler O’Neill and Partners, in a report. However, anticipated interest rate hikes this year could help offset or overcome lower commission revenue because retail brokerage firms milk so much profit from interest margins as rates increase, he said.

The move also comes as trading volume is increasing due to rising markets and gut reactions in individual stocks to tweets from President Trump, TD Ameritrade Holding Corp. CEO Tim Hockey

Fidelity lowered commissions with an eye toward boosting trading volume, while TD Ameritrade was responding to competitors, spokeswoman at the broker-dealers said. Schwab Chief Financial Officer Joe Martinetto, nodding to the rate play that benefits Schwab by investing client deposits at much higher rates than it pays for the, said the price cuts are a way to invest “in our clients ahead of the next Fed move.”

Analysts worried about the effects of price wars on revenue at the discount brokerage firms took comfort in the fact that Schwab matched but did not undercut Fidelity. Commission cuts appear to have found a floor, Repetto wrote.